This is an Insight article, written by a selected partner as part of GCR's co-published content. Read more on Insight
The actions of the United States and other governments to provide government stimuli to severely contracting economies in late 2008 and 2009 has stopped the recession and hastened the start of economic recovery. While the rebound has been robust in parts of the world, particularly in Asia, growth had started back up in the US by the fourth quarter of 2009, albeit from a sharply contracted base. The contraction in trade dwarfed the contraction in the overall GDP in the US and around the world. IMF estimates for the first nine months of 2009 showed global trade contracting US$3.8 trillion. Imports into the US in the full year 2009 declined by some US$540 billion.
2010 will almost certainly show an improvement on a very difficult 2009. However, the early months of the economic turnaround were characterised by limited job creation, a situation which generated uncertainty on the sustainability of the recovery and left millions of Americans looking for work. While the financial system seemed to have largely stabilised and many banks raced to pay back government funding before year-end 2009, in part to address compensation restrictions for management that would otherwise have applied, continued uncertainty on private and commercial real estate kept at least some dark clouds on the horizon about the major financial institutions as the new year started. Moreover, rumblings on fiscal viability for two of the historic anchors of global economic stability, as well as concerns about a growing housing bubble in an important emerging market, were widely discussed or pointed to as ongoing challenges to strong global economic recovery - namely the strains on a number of European countries whose accumulated debt led to declines in the value of the Euro, concerns about US projected and cumulative deficits and a red-hot economy in China which raised renewed concerns about a possible housing bubble in China and the extent of bank loan problems ahead in that country.
In the United States, the stimulus package from 2009 continues to generate significant government spending on projects in 2010. This in turn has generated considerable interest in both some of our trading partners and in various businesses for how government procurement works, particularly Buy America provisions.
Government procurement has traditionally had preferences here and in many countries for local suppliers. Historically, commitments made in the GATT and more recently in the WTO do not apply to government procurement unless a government has bilateral or plurilateral commitments in the government procurement area.
The Government Procurement Agreement (the GPA) in the WTO is a plurilateral agreement to which the US, the EU, Japan, Canada and a number of other countries are members. Existing members have encouraged non-members to participate through a variety of means, including accession negotiations to the WTO for countries like China, Saudi Arabia and Ukraine, all of whom are observers. Taiwan is the most recent member to join the GPA having completed negotiations and become a member on 15 July 2009. India is the most recent country to become an observer (10 February 2010). While China has started the process of accession to the GPA, progress is quite limited as of early 2010. The size of the stimulus package in the United States and in certain other markets has led companies, limited in their traditional commercial markets during the recession, to push hard for a piece of government procurement funding.
One important trading partner, Canada, has reached agreement with the US to open up its provincial government acquisitions to the US under the GPA in exchange for the US doing the same for the 37 states who have made commitments under the GPA. At the same time as there has been progress in some situations, China has announced an indigenous innovation policy restricting government procurement to companies whose technology was developed in China - creating considerable concern within the international business community and trading partner governments, including in the US.
Traditional trade negotiations continue in the WTO in the Doha round, where progress remains slow as the US seeks to gain a better understanding of what is actually on the table from trading partners, key emerging markets consider what flexibility they may have in improving their offers on market access, and the technical work in some areas continues to move forward. While few expect a conclusion in 2010, and while 2010 will see significant turnover of senior officials in Geneva for many missions and new teams in capitals for some important players, all major countries, including the US, continue to express a desire to move the round forward to a conclusion.
The lack of closure on the Doha negotiations has led to a renewed interest in bilateral and plurilateral agreements for many countries. While there has been and remains scepticism within some parts of the body politic in the United States on whether the historic trade policy of the US has advanced overall US trade interests, the Obama administration is looking for a road forward that will address concerns of workers, environmentalists and others on the balance of trade agreements and is working with trading partners in Panama, Colombia and Korea to see if existing bilateral agreements can be modified to permit presentation to Congress.
At the same time, the administration has expressed interest in the Trans Pacific Partnership Agreement which seeks an FTA with seven countries - New Zealand, Australia, Brunei, Vietnam, Peru, Chile and Singapore - and might be extended to other countries in the Pacific region. While the US has bilateral FTA agreements with four of the seven countries (all but New Zealand, Brunei and Vietnam), the possibility of a new standard in FTA as well as the promise of future expansion has generated considerable interest in the business community.
The administration has announced the objective of doubling exports within five years as part of its 2010 focus on job creation in light of the severity of the recession in the US. The National Export Initiative signed by the president on 11 March 2010 focuses on improving 'conditions that directly affect the private sector's ability to export. The NEI has as its objective the doubling of US exports over the next five years by working to remove trade barriers abroad, by helping firms - especially small business - overcome the hurdles to entering new export markets, by assisting with financing, and in general by pursuing a government-wide approach to export advocacy abroad' (Executive Order - National Export Initiative, 11 March 2010).
Trade enforcement of existing agreements has been and remains an important part of the Obama administration's efforts to make trade work for all parts of society. Ambassador Kirk has worked to resolve long-standing disputes with the European Union on beef hormones and on bananas (where the US has offensive issues) and has resolved a dispute with Brazil on cotton (announced 6 April 2010) (where the US has defensive interests).
A host of issues with important trading partners like China (China's limitation on its currency value, indigenous innovation policy, cyber attacks on US companies, export duties on hundreds of products contrary to express accession obligations undertaken by China - to name just a few) will be a challenge not only for the United States but for other major trading nations and will help determine whether China moves from an export-driven growth strategy to a more sustainable approach based on growing domestic demand.
While the climate change negotiations in Copenhagen in December 2009 didn't result in a binding agreement, positive signals have been made by many nations, including two of the large emerging countries - China and India. Thus, amid the disappointment of some for not achieving binding reduction commitments in Copenhagen, the negotiations continue and the hope remains that all major contributors to global emissions will play a constructive role in the resolution.
The severity of the global recession has made progress in national legislation in some countries, like the United States, more halting than some would desire but gives the negotiations time to sort out the distribution of efforts which will be key to determining what, if any, border measures or consumption measures will be needed to prevent leakage problems of simply having production move to the least-regulated markets.
The Obama administration continues to work with trading partners on the Anti-Counterfeiting Trade Agreement (ACTA), which is aimed at negotiating a new, state-of-the art agreement to combat counterfeiting and piracy. The United States began negotiating in June 2008 with several trading partners, including Australia, Canada, the European Union and its 27 member states, Japan, Mexico, Morocco, New Zealand, Singapore, South Korea and Switzerland. ACTA is aimed at helping governments combat the proliferation of counterfeit and pirated goods. These activities not only cost businesses billions of dollars every year, they also undermine legitimate trade and expose consumers to potentially dangerous products.
As important as enforcement issues are - whether they are related to addressing the problems of trade distortions in key markets, climate change, intellectual property rights or better monitoring of imported consumer products - they only represent one element of a larger task of making trade more equitable and balanced. The Obama administration has raised this concern in various fora and the balancing aspect involves not only actions by trading partners with large trade surpluses but also actions by countries with large trade deficits and the addressing of systemic issues.
Among the more fundamental issues that have unbalanced the system for decades is international tax policy. Current US tax policy and global trade rules keep in place distortions that currently create a US$350-billion-a-year arbitrary global disadvantage weighing down US companies and workers.
Another crucial issue is that of currency misalignments resulting from deliberate government policies to keep currency values low to enhance exports. These policies, particularly by governments in Asia, result in significant economic dislocations to companies and workers. Where governments take deliberate steps to limit the movement in their currencies' value with a resulting trade distortion, multilateral institutions such as the IMF and the WTO need to identify how other trading nations can obtain an effective solution to prevent resource misallocation and significant dislocations.
Yet another matter is the lack of multilateral disciplines on joint government activity to control the supply and sale of key commodities (oil being the classic example) regardless of the distortions to global trade, the skewing of trade balances and dislocations to jobs and investment.
These issues could be taken up in long-term reforms of multilateral institutions. None are being actively pursued multilaterally at the moment and one - currency valuation issues - is being blocked within the IMF by one of the key players. Growing concerns within the US and the emerging consensus of economists on the extent of the undervaluation of at least the Chinese Yuan may result in at least some revaluation of the Chinese currency in the next year. If not, a major potential bilateral issue may result in US action.
Thus, while 2010 will be a year in which the US focuses on moving its economy forward and regaining job growth, trade has started to emerge as an important issue both on the export and import side and from the possible addressing of some long-simmering issues like climate change, consumer protections and currency valuations. With a return to global growth, a significant rebound in global trade is likely. Hopefully 2010 will also be a year characterised by cooperation between emerging economic powers and traditional trading leaders to resolve important issues of sustainability of the trading system overall.